MoneyGram International Inc. (MGI) reported
first quarter loss per share of 26 cents, substantially lower than
the Zacks Consensus Estimate of earnings of 2 cents, but in line
with the year-ago quarter.
Results included stock-based compensation costs of $4.6 million,
$2.9 million of restructuring and reorganization costs and $1.5
million in costs associated with the recapitalization. Reported net
loss was $21.7 million as compared with net loss of $21.4 million
in the year-ago quarter. However, net income before preferred
dividends and accretion recognized on preferred stock came in at
$14 million, modestly up from $10.8 million.
Total operating expenses climbed 4.3% year over year to $262.3
million. Lower investment income, higher operating expenses and
lower revenue per transaction that continues to be within the $50
price band in the U.S., were partially offset by higher money
transfer transaction volumes and lower tax rate.
MoneyGram’s total revenue for the quarter was $294.0 million, up
2.6% from the year-ago period, but a tad lower than the Zacks
Consensus Estimate of $295 million. While fee and other revenue
climbed 3.2% year over year to $290.0 million, investment revenue
decreased 28.6% year over year to $4.0 million.
Segment Results
In the Global Funds Transfer segment,
MoneyGram’s revenue rose by 5% year over year to $269.8 million.
Money transfer transaction volume increased 14%, while money
transfer fee and other revenue grew 8% to $239.6 million from the
prior-year period.
On a constant currency basis, money transfer fee and other
revenue increased 9% on a year-over-year basis. However, bill
payment transaction volume dropped 8% year over year, whereas, fee
and other revenue declined 11% to $30.1 million from the prior-year
quarter. Operating margin plummeted to 9.8% from 10.8% in the
year-ago quarter. Global agent locations reached 233,000, an
increase of 18% over the prior-year quarter.
Total money transfer transactions originating outside the U.S.
escalated 17% from the prior year. Transaction volume to Mexico
increased 10% year over year, significantly improving from a
negative 11% growth in the prior-year quarter. Besides, excluding
transactions sent to Mexico, MoneyGram’s transactions originating
in the U.S. increased 9% year over year. Intra-U.S. transaction
growth increased 17% over the prior-year period.
In the Financial Paper Products
segment, MoneyGram’s total revenue declined 15.8% year over year to
$23.9 million. However, operating margin modestly rose to 35.1%
from 31.3% in the year-ago quarter, reflecting reduced commission
expenses.
Liquidity
As of March 31, 2011, MoneyGram had cash and cash equivalents of
$3.73 billion, net receivables of $411.3 million and
available-for-sale investments of $145.2 million. MoneyGram ended
the quarter with $640.1 million of outstanding debt and assets in
excess of payment service obligations of $244.2 million.
Recapitalization Update
On March 7, 2011, MoneyGram entered into a recapitalization
program with its investors including private equity firm Thomas H.
Lee Partners (THL) and investment bank
Goldman
Sachs Group Inc. (GS) to improve its vulnerable
capital position.
Accordingly, the recapitalization program will enable the
conversion of the previously held preferred shares into common
shares of MoneyGram. As a result, THL will now own 55.1% in
MoneyGram while Goldman will enjoy a stake of about 30.3% in the
company.
The recapitalization program further offers about 28.2 million
shares and $140.8 million in cash to THL, while Goldman will
receive about 0.016 million shares along with a cash payment of
$77.5 million as consideration from MoneyGram.
Previously, an investment conglomerate led by THL and Goldman
bought a 63% equity stake in MoneyGram for $710 million, in order
to bail out the latter at the peak of the financial crisis
in March 2008. This stake was held in the form of preferred share
interest.
Moreover, a healthy capital constitution also paves the way for
acquiring a new senior credit facility, which is projected to be
utilized for refinancing the existing debt as well as for funding
the recapitalization program. Accordingly in early April 2011,
MoneyGram announced that a syndication process had been completed
for a new $540 million senior secured credit facility consisting of
a $390 million 6.5-year term loan B and a $150 million five-year
revolver.
Furthermore, the proceeds will refinance the issuer’s existing A
and B term loans and fund the cash portion of the conversion
premium on the issuer’s preferred stock. However, the pricing has
not been disclosed. Besides, closure of the new credit
facility is subject to terms and conditions and is also dependent
on the successful closure of the recapitalization
exercise.
Our Take
MoneyGram’s core business is expanding with a vast global
network, increasing money transfer transaction volumes and
disciplined expense management. While the company’s business
continues to grow in new emerging verticals, these verticals
generate lower revenue per transaction compared with the
traditional consumer credit verticals, which continue to experience
secular and economic declines.
However, though the restructuring program taken up in 2010 will
take longer to reap strong results, refinancing debts and
recapitalization reflect a sturdy capital position in future. We
believe that the company has the potential to overcome the impact
of the volatile U.S. dollar against other currencies and additional
losses in its investment portfolio, once the global economy
rebounds to its historical highs.
On April 26, MoneyGram’s peer Western Union Co.
(WU) reported fourth quarter earnings of 35 cents per share, a
penny higher than the Zacks Consensus Estimate, benefiting from a
modest margin improvement led by its Consumer-to-Consumer segment,
partially offset by $24 million of pre-tax restructuring
charges.
MoneyGram carries a Zacks #3 Rank, which translates into a
‘Hold’ recommendation over the short term. Additionally, over the
medium-to-long term, we suggest the investors
stay ‘Neutral’.
GOLDMAN SACHS (GS): Free Stock Analysis Report
MONEYGRAM INTL (MGI): Free Stock Analysis Report
WESTERN UNION (WU): Free Stock Analysis Report
Zacks Investment Research
Western Union (NYSE:WU)
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Western Union (NYSE:WU)
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